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The Canadian dollar fell two-year low against the U.S dollar; More downside expected

September 20, 2022 17:11:00

The Lonnie weakened to its lowest levels in the last two-year against the greenback on Tuesday. Canadian stocks tumbled more than 1%. Investors refrained from placing aggressive bids following a bit cooler inflation readings and a Federal Reserve rate decision this week.

The Canadian dollar continued its weakness that extends from the previous week. A global recession fear, falling commodity prices, and a rate differential kept the pressure on the currency.

In the recent data, the domestic inflation eased to 7% in August, from 7.6% in July, and below the market consensus of 7.3%. However, the reading unexpectedly slowed down from the 39-year peak of 8.1% two months back. This led to the market expectations that the central bank would be less aggressive in the next rate hike.

Further, the unemployment rate in Canada jumped to 5.4% in August from the record low of 4.9% recorded two months earlier. The market consensus was 5%.

A cooler-than-expected inflation data and softer job data might pause the rate hike or at least not slow down the pace.

The World Bank reported on Thursday that the global economy might be heading toward a recession. Disrupted global supply chain and labor-market pressure are the key factors associated with the projections.

Moving on to the economic structure, the Canadian economy is export based. A falling commodity price including crude oil put additional pressure on the major.

The market is gearing up for another supersized rate hike from the Federal Reserve this week.

USD/CAD could reach 1.3400

The pair is trading along the ascending trend line from the lows of 1.2516. Further, it comfortably sits above the 20-day and the 50-day EMA crossover. A strong green candlestick indicates sustained buying pressure.

The Stochastic oscillator trades in the overbought zone.

The next possibility for USD/CAD is positioned at 1.3400.

A corrective pullback could be 1.3350 which could be a discount buying opportunity.

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